Minutes of the SONIA Stakeholder Advisory Group - 26 September 2024

Minutes

1: Welcome / introductions

The Chair welcomed the Group and those present as part of the observers program.

2: Diversity, Equity & Inclusion

The Group has recently engaged in several initiatives to increase diversity, including knowledge sharing initiatives, an observers program and initiating a survey of diverse characteristics. The aim is to ensure that the Group provides a welcoming, inclusive and diverse forum for participation in discussion pertaining to SONIA and sterling money markets.

3: Knowledge Sharing

Members of the Group presented knowledge sharing topics. LSEG provided an analysis of the LCH-cleared SONIA swaps activity and Mizuho provided an overview of potential impacts of changing monetary policy in Japan on sterling money markets.

It was noted that the SONIA swaps market is now more liquid than the pre-transition combined SONIA-LIBOR swaps market. SONIA futures volumes are also higher than short sterling volumes.

The end of negative rates and yield curve control in Japan, is expected to have a limited impact on participation in sterling markets, even as some Japanese companies repatriate capital to Japan.

4: Retrospective review of market conditions

The SONIA to Bank Rate wedge has remained at 5bps below Bank Rate since 7 May 2024. Volumes have remained robust through the period with movements occurring within the normal range.

The Bank’s liquidity facilities (notably the Short Term Repo Facility) continues to support liquidity in sterling money markets as quantitative tightening progresses.

5: RFR Update

The last three synthetic LIBOR settings ceased publication on Monday 30 September 2024 signalling the end of LIBOR. Bank of England staff thanked the Group and their firms for their participation in the transition to SONIA, the sterling risk-free rate. The RFR Working Group work will wind down in line with the cessation, having met its objective.

The Group noted the growth in volume in SONIA deposits, swaps and futures. Members discussed the increase in liquidity, due to volatility having fallen as the current increasing rate cycle came to an end.

6: ONS data release times and their impact on SONIA markets

The Group was advised that the Office for National Statistics was seeking input on economic data release times, as part of its period of engagement with the market, as requested by the Office for Statistics Regulation.  Key data releases are currently at 7am (having been moved to that time during Covid), which lies outside of market operating hours.

All members present favoured data releases returning to within market hours, with the exception of one member, who was agnostic. A return to data releases within market hours supports real time risk management and is consistent with international markets. It was noted that the Bank’s MPC announcement was during market hours when there was more liquidity. Data releases outside of market hours can cause spreads to widen due to reduced liquidity. This can be transmitted to the wider economy via increased costs. Liquidity can also be affected on the afternoon prior to data releases and on the market open on the morning of data releases.

7: AOB

No further business was discussed.

Attendees

Chair: Caroline Stockmann (Independent member of SONIA Oversight Committee)

External Member: Alexandra Innes (Independent member of SONIA Oversight Committee)

Blackrock

HSBC

ICE Futures

Insight Investments

LSEG

LGIM

Mizuho

NatWest

Rabobank

Société Générale

Bank of England: Paul Alexander, Shahee Bhikhu, Joe Clouting, Billy Crawt, Joanna McLafferty, Kirstine McMillan, Arif Merali, Matt Roberts-Sklar, Andrea Rosen, Joe Smart, Laura Wightman, Ashley Young

Apologies

Goldman Sachs

ISDA

TC ICAP